Family businesses hold a unique place in our economy, with entrepreneurial endeavors passed down within families through generations. Your business not only embodies your hard work and significant dedication, but also carries your hopes and dreams for the future of your family. However, without proper planning, those dreams can be jeopardized. That’s where estate planning comes into play. By creating an estate plan, you can protect business and personal assets, ensure a smooth transition of business ownership, and maintain harmony within your family.

Why is Estate Planning Important for a Family Business?

Estate planning is the process of deciding what happens to your belongings after your death. An estate plan includes instructions for how your financial assets should be distributed, who should receive your personal belongings, steps you want to take to reduce the tax burden, and more. It includes documents of importance, like a will, trust, and power of attorney. An estate plan can also mention your wishes for if your health declines, such as your preferences for home care. If you have a family business, your business assets are part of your estate as well. This is especially true for sole proprietors. 

As a family business owner, it’s important for your estate plan to include succession planning. This is the process of creating a plan for the future of your business after you are no longer able to lead it due to death or incapacitation. It includes information like who should move into different leadership roles and best practices for your business. Succession planning helps ensure your business continues to thrive and bring in money for your family even after you’re gone. It also helps ensure your business continues heading in the direction you envision and gives the new owners guidance for their decision making. A plan makes sure your wishes for the future are known and are carried out.

Succession plans offer a variety of benefits for you, your family members, and your business. With a comprehensive plan in place, you can navigate transitions successfully, ensure the continuity of business operations, preserve your family business’s values, and secure the future of your business and your family.

Keep the Business Running Smoothly

Estate planning and succession planning ensure a seamless transfer of ownership within the family business, helping to avoid potential conflicts. Effective planning also helps maintain the continuity of business operations, ensuring that the company can thrive even after your departure. This stability is necessary for long-term success. 

Estate planning also provides an opportunity to review and evaluate the overall business strategy. This process allows you to identify strengths, weaknesses, and opportunities to help guide decision-making for the future owners. 

Continue to Provide for Your Family

When the future of your family business is secure, you can enjoy peace of mind knowing that the well-being of your loved ones is taken care of. Estate planning supports the success of your family business so it can continue to generate wealth for your family. It also helps reduce the tax burden.

Additionally, planning allows you to preserve key aspects of your business, including your family’s values, vision, and legacy within the business. This keeps the business aligned with your guiding principles and helps the business maintain its unique identity over generations. Additionally, estate planning gives families the opportunity to discuss succession matters in advance, helping to avoid potential conflicts and disputes down the road. 

Protect Business Assets

An estate plan is important because it helps protect the physical and financial assets of your family business as well as your personal assets and wealth. Thoughtful estate planning strategies help ensure an efficient wealth transfer from one generation to the next and protect your assets from potential liabilities.

Minimize the Tax Burden

Keeping businesses financially stable is essential. Proper estate planning helps you prepare for the tax burden related to transferring business ownership, such as estate tax and gift tax. With a smart tax strategy in place, you may be able to reduce or eliminate some types of tax. 

Tips for Creating an Estate Plan and Succession Plan

There’s a lot to consider when creating a plan for your estate or family business. Knowing what to expect can help you prepare for the future and create a plan that clearly states your wishes for your family members and business owners. By beginning the planning process now and having important discussions with key people, you can give everyone peace of mind and helpful guidance. Plus, you don’t have to do this alone. Working with an attorney you trust is a great way to make the estate planning process easier. 

Know What’s Included

It’s helpful to know what’s included in an estate plan. 

Estate plans often include a:

  • Will: Expresses you wishes for the future, including who will receive your personal belongings and financial assets, including money in your retirement account
  • Trust: Designates a third party to hold specific physical or financial assets in a trust and distribute them to the beneficiary at a specified time. A trust can help protect assets from probate and minimize the tax burden.
  • Power of attorney: Names a person who can make decisions on your behalf if you’re unable to make them on your own
  • Succession plan: Explains what happens to your company in the event of your death or incapacitation

Succession plans often include a:

  • Successor: The person you trust to take over your role. You can also list other roles in the company and who should fill those roles.
  • List of standard operating procedures: Best practices that will help future business owners and leaders make decisions and keep the company running
  • Training and development strategies: Defines the knowledge and skills needed to succeed at your company, as wells the educational experiences that will prepare employees to succeed in new roles

Your succession or estate plan may also include a buy-sell agreement. This says that other business owners in your company agree to buy out your interest if you die or become incapacitated. Owner life insurance may be used to fund the buyout.

Start Planning the Transfer to New Owners Now

It’s not too soon to start identifying and nurturing future leaders you trust within the family. This encourages professional growth, motivates talented people to stay within the organization, and promotes a culture of continuous learning. Decide who will own the company, who will manage it, and how to transfer control of the business to others. You can start preparing people now so they’re ready to step into their new leadership roles when the need arises. 

Consider what challenges your employees and leadership team might face in the future. Think about the information people will need to overcome potential challenges once you’re no longer active in the company. Consider which of your family members or employees have the knowledge, skills, and personality to successfully run the business in your absence.

Have a conversation with family members to discuss the future of the company, including expectations, timelines, roles, and under what circumstances to close or sell the business. Open communication helps manage expectations and reduces tensions among family members, fostering harmony within the family and business.

Hire a Lawyer to Help with Planning

Planning your estate and the future of your family business may feel overwhelming. Working with a lawyer you trust can make the process easier. An estate planning lawyer is familiar with the documents and information that should go into your plan as well as the role of insurance. Working with a lawyer who’s knowledgeable in tax laws and tax strategies can help you minimize the tax burden, help you avoid probate, and maximize the benefits for your beneficiaries. Lawyers are excellent at helping you protect your personal and business assets.

How businesses are structured also affects what happens to them when the owner passes. There are many different business structures, including sole proprietor, limited liability corporation, partnership, limited partnership, and corporation. The structure of your business will affect the tax burden when it’s time to transfer ownership, potential liabilities, how complex the transfer of ownership will be, and more. An attorney can offer advice on what to expect and guidance for making the succession process as seamless as possible. 

Estate planning is crucial for ensuring your family business continues to thrive and provide for your family. It also protects your business and personal assets, helps minimize the tax burden, and lets your family and business partners know how the company should operate when you’re no longer involved. There’s a lot to consider when creating a plan for your estate, but working with an attorney can make the experience simpler. 

Need assistance? The team at Taneff Law is here to help. We offer estate planning services for individuals and businesses and are also knowledgeable in probate law, tax laws, trust creation, and more. We’ll help ensure you create a plan that includes all required information. Contact us at (614) 241-2181 or to learn more.